Why It Pays To Shop Around For A Mortgage

CALGARY - When the Bank of Montreal and TD Bank dropped their special five-year fixed mortgage rates earlier this month, it drove Alyssa Furtado "crazy" to see how much attention they received.

The founder of RateHub.ca, a website that compares financial products, says homebuyers can do better if they shop around and do their homework.

BMO got the ball rolling by reducing its rate to 2.79 per cent from 2.99 per cent and TD quickly matched that.

And while it's the lowest rate advertized among the big banks, it isn't the lowest on the market, Furtado said.

"The banks do have such strong brands in Canada, so they are still a source that people go to look at the rates. So if you were only looking at banks' websites, 2.79 would seem like a good deal," she said.

"But if you were price comparing, including mortgage brokers, or you were going in and haggling and negotiating with your bank, you'd realize that the rates available were a lot lower."

Many bank customers don't realize they have negotiating power when it comes to mortgages, said Penelope Graham, with RateSupermarket.ca, another comparison site.

In Canada, she said, "going with a lender is almost hereditary. You bank with who your parents banked with. Banks know this. They want to retain your business and they do anything they can as well to make it as convenient as possible for you," she said.

"Probably the most important thing that you can do before that process is to know what else is offered on the market and to know where you stand as a borrower. The better your credit score and your borrowing history is, the more leverage you are going to have."

The ability to make a big down payment also works in your favour, Graham added.

"You don't have to switch your bank to necessarily get a better rate, but it is in your best interest as a consumer to go in and say, 'Here's where I am as a borrower. How can you make this better for me?"

Going through a mortgage broker is also a good way to scope out a better deal. Brokers have access to mortgages from multiple lenders. The mortgage-shopper doesn't pay the broker, but rather the lenders do if a deal is done.

Sherry Jenkins, a consultant with broker Mortgage Intelligence, said she was surprised by the big bank rate drop announcements as 2.79 per cent "has been in the market for some time" and she's been seeing rates around 2.59 per cent.

But she cautions that "not every lender is created equal."

There are also aspects of mortgages beyond rates that are important to look at, such as whether they can be moved from one property to another without penalty or how much of the amount can be paid off early without penalty.

Rob McLister, founder of RateSpy.com said the lowest mortgage rate does not necessarily equal the best mortgage.

"Most people, they gravitate towards the lowest possible rate and they don't consider the ramifications if they need to break the mortgage or refinance later," he said.

"That 10-20 basis point rate savings can easily be eaten up by penalties and fees and restrictions later on in the mortgage term."